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<font size=3><b>Timor-Leste and the Extractive Industries Transparency
Initiative<br><br>
An Overview from Civil Society<br><br>
</b>By Santina Soares and Thomas Freitas<br>
to the Extractive Industries Transparency Initiative conference<br>
Oslo, Norway<br>
16 October 2006<br><br>
This paper, with notes, links, and a printable PDF version are at
<a href="http://www.laohamutuk.org/Oil/Transp/06LHLHtoEITIOslo.html" eudora="autourl">
http://www.laohamutuk.org/Oil/Transp/06LHLHtoEITIOslo.html<br><br>
</a>This paper gives an overview from civil society in Timor-Leste about
how our nation is relating to the goals and practices of the Extractive
Industries Transparency Initiative (EITI). Our country is one of the
newest in the world, developing not only its petroleum management system
but all its laws and governmental institutions, from scratch. We are also
one of the most petroleum-dependent nations on earth; within a few years
more than 90% of our economy and 95% of our government revenues will come
from petroleum extraction. We hope that we can utilize the EITI, Publish
What You Pay, and similar initiatives, as well as the experiences of
other countries, to help Timor-Leste avoid the "resource curse"
that afflicts so many other countries whose economies and political
development are comparable to Timor-Leste, and who are dealing with the
same international petroleum industry that has arrived on our seas and
shores. Thank you for your support.<br><br>
Both of the authors of this paper are members of the Core Group, a
network of Timor-Leste civil society organizations established in late
2005 to monitor and analyze our national budget, including income from
oil and gas development and the management of our new petroleum fund. The
Core Group Transparency includes: HAK Association, ETADEP, Luta Hamutuk,
La'o Hamutuk, Mata Dalan Institute, NGO Forum and Oxfam Australia. This
Coalition hopes to promote transparency and accountability in government.
<br><br>
Santina Soares works with La'o Hamutuk (the Timor-Leste Institute for
Reconstruction Monitoring and Analysis), which has closely followed
petroleum development in Timor-Leste since 2001. La'o Hamutuk
("Walking Together"), whose main focus is monitoring
international institutions active in Timor-Leste, has written on many
facets of Timor-Leste's natural resources, preparing detailed submissions
and lobbying extensively as Timor-Leste's Petroleum regime and Petroleum
Fund Act were enacted in 2005. Unfortunately, many of the dangers we
warned about are not adequately protected against in our legislation.
<br><br>
Thomas Freitas is Director of Luta Hamutuk and is a member of the
Consultative Council on the Petroleum Fund, a statutory body which is in
formation to advise Parliament on management of petroleum revenues for
the benefit of future generations. Luta Hamutuk is The Timor-Leste
Institute for Research, Advocacy and Campaign in English meaning
"Struggle Together" is a local NGO based in Dili, which focuses
on monitoring the revenue from Timor Sea and also monitoring the national
budget.<br><br>
We appreciate the opportunity to share some of our perspectives and
analysis with you, and would like thank everyone who has involved in the
process of inviting and preparing us to come to Oslo. We hope to learn
from your experiences and insights, and hope that our ideas will help
EITI and each of you increase our effectiveness in controlling some of
the disastrous economic and political effects of extractive industry
development.<br><br>
Timor-Leste is the second-newest nation in the world and one of the
poorest, with the second lowest Human Development Index in Asia. We
overcame 24 years of deadly, illegal Indonesian occupation in 1999, and
our first elected, constitutional government took sovereignty from the
United Nations just four years ago. Until a few months ago, we have been
peacefully building our government, our economy and our petroleum
development from almost zero. But this year, our progress has been
interrupted by crisis, causing many people to lose their homes and become
refugees in our country, violence which continues today. The roots of
this crisis, which forced the resignation of our Prime Minister, are many
and complex, relating to poverty, social jealousy, and our leaders' and
people's inexperience in democratic self-government. International
institutions -- the United Nations, the World Bank, and others -- share
responsibility with our own government and security forces for the hasty
and ineffective experiment in nation-building in our country. <br><br>
As our three-month-old Second Constitutional Government engages with the
new UN Mission in Timor-Leste, we are mindful that lust for petroleum
revenues played a role in Indonesia's invasion of our country in 1975,
and in Australia's support for that invasion. Petroleum resources may be
key to enabling us to escape from the poverty trap, but they have already
inflicted tremendous damage on our people. In this next phase of our
history, our government and people are strongly committed to equitable,
peaceful, accountable development, but it will be difficult to avoid the
pattern of political, economic, social and environmental devastation oil
and gas development has cause in developing countries worldwide. But we
must try, and appreciate your efforts to help all people struggling with
these nearly intractable problems.<br><br>
We have come to this EITI conference as representatives of civil society
to share our comments and analysis regarding the process of implementing
the principles of EITI in Timor-Leste. Timor-Leste's government is now
receiving about US$45 million per month from the Bayu-Undan gas and oil
project, whose development was enabled by the Timor-Sea Treaty signed by
Australian and Timor-Leste when we gained our independence in 2002.
Although this may not seem like a lot of money, in our small,
impoverished country it is 50% more than the entire rest of our
economy. These revenues are being deposited into a Petroleum Fund which
was established last year and contains more than $800 million
dollars.<br><br>
The London EITI Conference last year was addressed by our Prime Minister,
Mari Alkatiri, who also expressed Timor-Leste's commitment to
transparency and EITI at the founding conference in 2003. Mr. Alkatiri,
who was forced to resign last June, described the goals of his government
for public consultation, transparency, and audits to ensure that
information provided by oil companies and government officials is
accurate. Since then, his government has enacted the Petroleum Fund Act
and several laws which comprise Timor-Leste's Petroleum Regime. The
Petroleum Fund has been established, and Timor-Leste has conducted its
first bidding round for new licenses under the new regime.<br><br>
One of our coalition, La'o Hamutuk, also presented a paper at the March
2005 EITI conference in London, as we did at the World Bank EITI meeting
the previous month in Paris. We expressed concerns that the practices of
the government did not always live up to its lofty principles, and that
some of the provisions of the then-draft legislation fell short of what
was necessary. Over the past year and a half, some of our fears
become reality. Although Timor-Leste's laws and practices are better than
most other resource-rich, cash-poor countries, they are not good enough
to protect us from the resource curse.<br><br>
Last October, after the Petroleum Laws were passed, La'o Hamutuk
published two articles in our Bulletin, one describing the reality and
dangers of petroleum dependency in Timor-Leste, and the other pointing
out some of the loopholes in the just-passed Petroleum Regime, including
that only 16% of the 243 suggestions made in submissions from NGOs and
the World Bank were fully or partially implemented in the Petroleum Act.
Prime Minister Alkatiri responded defensively, writing that "Lao
Hamutuk is completely out of touch with the people of Timor-Leste ... You
don't want development to happen."<br><br>
Our article did not mention that the government has established a
transparency website, as the Prime Minister had pledged to the EITI
conference, an omission that he said "forces me to seriously
question the motives of La'o Hamutuk." That website has indeed been
established, and its structure indicates that it could significantly aid
in the achievement of transparency. However, the "latest news"
listed on its home page is almost a year old, a speech by the Prime
Minister on 17 November 2005. To be fair, a few newer documents have been
posted sporadically, including the quarterly reports of the Petroleum
Fund. Another government website, that of the Oil, Gas and Energy
Directorate, contains some information about the recent licensing round,
including the report of the evaluation commission. Virtually everything
on these websites is in English or Portuguese, languages not understood
by the vast majority of our people, and most Timorese have no access to
the internet, especially the 80% who live outside the capital. We hope
that public information can be made more complete and more accessible,
both linguistically and geographically. Compounding the problem, most of
our journalists have little understanding of petroleum and financial
issues, and no tradition of investigative reporting.<br><br>
In March 2005, Prime Minister Alkatiri reiterated that he has publicly
released the production-sharing contracts for Bayu-Undan project,
Timor-Leste's principal source of oil revenues for this decade. Most of
these contracts have been released, and they are posted on the
Government's Transparency website. However, 13 important paragraphs are
"deliberately omitted." The PSCs for Greater Sunrise, the
largest gas and oil field being considered for development, remain
secret.<br><br>
Last June, Prime Minister Alkatiri was forced to resign, and he has been
replaced by former Foreign Minister Jose Ramos-Horta, who the UN has said
"pledged his intention to place the highest importance in ensuring
transparency and accountability in the conduct of his
administration." The new Prime Minister has not, to our knowledge,
commented specifically on petroleum revenue transparency or EITI. The
abrupt, premature transfer of state power reinforces a concern civil
society has frequently stated -- that practices of transparency and
accountability must be enshrined in law, not up to the discretion of
individual office holders. The violence and instability which has plagued
our country in recent months results, in part, from public distrust of
some of our leaders, and we hope that the leaders will strengthen and
expand legal requirements for accountability and transparency. One
important step would be for Timor-Leste to implement the specifics of the
EITI initiative, going beyond expression of rhetorical support.<br><br>
We share the government's hope and optimism that the Petroleum Fund will
guarantee that future generations will share in the benefits of our
petroleum resources, and we applaud the existence of that fund and the
regular issuance of quarterly reports. However, the public consultation
required by the Petroleum Fund Act is still very limited, and has tended
to be one-way socialization rather than two-way consultation. The
Petroleum Fund Consultative Council, which provides advice to Parliament
on management of the Petroleum Fund, was required by the act to be
operational by January 2006; although civil society has selected our
representatives, the Council has still not been established. Parliament
has already approved our new national budget, about 82% of which is
financed with a $260 million withdrawal from the Petroleum Fund. It is
important to note that even if the Council were functioning as designed,
it has no oversight responsibilities over fund income, company
operations, or fund management -- in fact, it does not advise the
Government at all, being limited to consultation on Parliamentary
decisions about how much money to withdraw each year.<br><br>
We are concerned about the sincerity of the commitment to transparency in
the Petroleum Fund Act. Although the act enshrines "transparency as
a fundamental principle" it lists ten broad categories of
information which may be arbitrarily exempted from disclosure. In fact,
the word "confidential" appears in the Petroleum Fund Act
thirteen times, far outnumbering "transparency" (five) and
"accountability" (zero). The Petroleum Fund Act also contains
inadequate protection against overspending, no guidelines for ethical
investment or usage of fund money, and an unsustainable model of a
constant annual withdrawal (sustainable income) in a nation whose
population doubles every 17 years.<br><br>
However, as a new nation, our government has taken some efforts to
implement the goals of EITI. The oil companies, on the other hand, are
reluctant to. Although Woodside says they support EITI, they have not
allowed the Sunrise PSCs to be disclosed. ConocoPhillips, the operator of
the Bayu-Undan project, has not signed onto EITI. However, they say that
"ConocoPhillips supports transparency of revenue payments to and
expenditures by governments involved in extractive resource development
so long as it is directed by the host government and applies equally to
all parties, whether private or state-owned, involved in resource
development activities." But if a company wanted to be more
transparent than the Government required, for example to comply with
Publish What You Pay principles, the model PSC with Timor-Leste prohibits
them from disclosing information "except with the consent of the
Petroleum Ministry" or as required by law or by a recognized stock
exchange." <br><br>
As civil society organizations, we are trying to work with our Government
to development the country in the interests of all its people. We
appreciate the chance to present our views today, and look forward to
future exchanges with our Government and people from other countries to
advance our common goal of ensuring that petroleum development is good
for our citizens, and not only for the companies that profit from our
resources and people who live in countries that purchase and consume
them. Thank you.<br><br>
<b>Recommendations<br><br>
</b>To petroleum companies operating in Timor-Leste and the Joint
Petroleum Development Area<br><br>
<ul>
<li>Provide, public, quarterly reports on all payments made to
Timor-Leste and the Timor Sea Designated Authority for taxes, royalties,
rents, fees, bonuses, etc. The report should include the date, amount,
payer, payee, project and reason for each payment.
<li>Consent to uncensored publication of existing production-sharing
contracts for Bayu-Undan, Greater Sunrise and other projects.
<li>Conoco-Philips and its Bayu-Undan partners should establish an office
in Timor-Leste, a long-standing, unrealized promise. This would help make
them more accessible to the people of Timor-Leste, and other oil
companies operating projects in our territory should also have offices in
our country. Each office should include a public information center with
resources in languages understood by most citizens of Timor-Leste.
</ul><br>
To the government of Timor-Leste<br><br>
<ul>
<li>Establish the Petroleum Fund Consultative Council, and broaden its
mandate to consult on all aspects of the Petroleum Fund, including
relations with the contractors, revenue receipts and investment
management.
<li>Follow the Petroleum Fund Law, especially Article 8 " No
transfer shall be made from the Petroleum Fund in the Fiscal Year unless
the Government has first provided Parliament with reports: (a) specifying
the Estimated Sustainable Income for the Fiscal Year for which the
transfer is made; (b) specifying the Estimated Sustainable Income for the
preceding Fiscal Year; and (c) from the Independent Auditor certifying
the amount of the Estimated sustainable in paragraphs (a) and (b)
above."
<li>Inform the companies that Timor-Leste gives permission for full
compliance with Publish What You Pay principles, including the
information listed in recommendation #1 above.
<li>Amend Article 15.6 of the Timor-Leste Model PSC, Article 32.2 and
other provisions of the Petroleum Fund Act, and Article 13 of the JPDA
Model PSC to comply with principle of transparency, keeping secrecy to an
absolute, well-defined minimum.
<li>Expand the quarterly reports of the Petroleum Fund beyond the current
very limited, aggregated information on receipts. These reports should
include, from government sources, reports on all payments made by oil
companies to Timor-Leste and the Timor Sea Designated Authority,
including the date, amount, payer, payee, project and reason for each
payment.
<li>Establish a public information center on petroleum development and
resources, which would include information and reports about oil and gas
extractive activities and payments from the companies to be accessible to
many levels of people: researchers, academics, student, journalists,
local leaders and the general public.
<li>Publish the external audit report on the Petroleum Fund in a timely
and complete matter, including individual payments as well as aggregated
amounts.
<li>Involve civil society actively in the process of petroleum
development, revenue management and oversight.
</ul><br>
To the EITI implementation process<br><br>
<ul>
<li>Provide technical support and advice to help Timor-Leste's government
implement the EITI. To date, such advice has come from the World Bank,
IMF UN agencies and bilateral cooperation, but it would be better from
someone familiar with EITI mechanisms who would prioritize this.
<li>Inform Timor-Leste that it will no longer be listed as an "EITI
implementing country" until it implements all the
"sign-up" indicators and commences the "set up"
actions listed on pages 17-22 of the EITI sourcebook, as well as
developing a "country work plan" as described by the EITI
International Advisory Group.
</ul><br>
<x-sigsep><p></x-sigsep>
***********************************************************<br>
Charles Scheiner<br>
La'o Hamutuk (The East Timor Institute for Reconstruction Monitoring and
Analysis)<br>
P.O. Box 340, Dili, Timor-Leste<br>
Telephone: +670-3325013 or +670-7234335 (mobile)<br>
email: charlie@laohamutuk.org website:
<a href="http://www.laohamutuk.org/" eudora="autourl">
http://www.laohamutuk.org<br><br>
</a>P.O. Box 1182, White Plains, NY 10602 USA<br>
Tel. +1-914-831-1098 or +1-914-473-3185
(mobile)<br><br>
<br>
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